Trade in Flat Computer Monitors and Vegetable Oil

The U.S., Japan and Taiwan have asked the WTO to establish a dispute settlement panel to review whether the EU is meeting its commitments under the Information Technology Agreement (ITA) to provide duty-free access for products covered by the agreement. The ITA is a voluntary agreement among 70 WTO members to allow duty-free imports of covered products and could serve as a template for other agreements in the post-Doha era.

The Ministerial Declaration on Trade in Information Technology Products was concluded at the Singapore Ministerial Conference in December 1996 with 29 participating countries or customs areas including the 15 members of the then European Community. The ITA was to become effective on April 1, 1997 if countries accounting for 90 percent of world trade in the covered products had signed the agreement. The original 29 members, including the U.S., the EC, Japan, Taiwan, Korea, Australia, Canada and Singapore, had only 83 percent of world trade in the products. Twelve other countries joined by April 1, 1997 and the first tariff reductions occurred on July 1, 1997.

According to the U.S. Trade Representatives Office (USTR), products covered by the ITA include computers and computer peripherals, set top boxes, digital cameras, fax machines, and most telecommunication and semiconductor equipment. The ITA only addresses tariffs; non-tariff barriers are reviewed, but there are no requirements to change them. This avoids never ending debates about the impact of tax policies and other government actions that may have minor impacts on trade, but are not substantive issues. Tariffs must be bound at zero for all products covered by the ITA. New members are allowed a transition period for sensitive items. WTO rules require that tariff free access to markets be provided to all members of the WTO (most favored nations), not just those who are signers of the ITA.

The U.S., Japan and Taiwan have charged that the EU inappropriately placed tariffs on LCD computer monitors, products that scan/print/copy/fax and set top boxes. EU imports of these products were valued at over $11 billion in 2007 out of total world trade in these products of $70 billion. The EU has been levying tariffs of up to 14 percent since 2005 because the products contain features or technologies that where not part of the products previously. The USTR argues that the EU is taxing innovation which is the exact opposite of the goal of the ITA. If this became an accepted practice, virtually none of the ITA products would remain duty free for long.

Despite this current dispute with the EU, the ITA can be thought of as a coalition of the willing, and the same approach could be applied to agricultural products. Vegetable oils can be used as an example because they are produced and consumed throughout the world and are a basic food item for which some importing countries have reduced tariffs in recent years.

How the process would work for vegetable oils would be partially determined by the definitions of trade in oilseed crops and/or vegetable oils. According to estimates from USDA, in the 2007/08 marketing year the U.S., Brazil and Argentina together accounted for 79.5 percent of the 89.8 million metric tons (MMT) of oilseed exports. Canada accounted for another 8.4 percent followed by Paraguay at 5.1 percent, for a five country total of 93.0 percent. On the import side, China alone accounted for 41.3 percent of imports followed by the EU at 18.5 percent and Japan at 7.5 percent, for a three country total of 67.3 percent. It would take another 10 countries to reach the 90 percent threshold on oilseed crop imports.

Using only vegetable oil would give a different set of countries. The three countries with the largest share of the 51.9 MMT of exports of vegetable oils in 2007/08 were Indonesia at 29.7 percent, Malaysia at 28.1 percent and Argentina at 14.5 percent, for a three country total of 72.3 percent. About another dozen countries would be needed to reach 90 percent of vegetable oil exports. Vegetable oil imports are much more spread out with China at 19.2 percent of world imports, the EU at 15.8 percent and India at 10.9 percent, for a three country total of only 45.9 percent. A couple of dozen countries would need to be added to meet the 90 percent threshold.

Achieving an agreement among those countries would not be easy; India and China were major stumbling blocks in the recent trade talks. The U.S. would have to address its 19.6 percent tariff on soybean oil. One advantage of focusing on vegetable oils is that the worldwide market is growing by about 5 percent per year. Working out a trade agreement in a rapidly growing market is likely to be easier than in a slow growing or contracting market.

Oilseeds and vegetable oil exporters would need to commit to not imposing export tariffs or quotas to slow exports when supplies are limited. The rice market was distorted this year when exporters withdrew from the market to protect domestic consumers. With increased concerns about food security, exporters should recognize that they must commit to meeting the needs of importers regardless of market conditions. Removal of differential export and import tariffs on whole oilseeds and vegetable oils would also likely be part of a deal. Subsidies to producers would need to be addressed so some exporters do not gain market shares based on subsidies. This may be easier to handle on an individual crop basis because producers giving up subsidies would directly benefit from the zero binding of import tariffs.

Other problems would be discovered as exporters and importers began negotiations, but that is what trade negotiations are designed to address. Trade is a positive sum economic arrangement. Breaking down issues at the commodity level may be manageable and increase gains from trade.

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst. Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process. Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004. Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.